Higher tax on wages earned by UK national holding ‘working holiday visa’ violates tax treaty: Australia HC

Case Details: Catherine Victoria Addy v. Commissioner of Taxation - [2022] 143 taxmann.com 196 (FC-Australia)

Judiciary and Counsel Details

• • Kiefel, CJ., Gageler, Gordon, Edelman & Gleeson, JJ.

Facts of the Case

The Appellant was British and traveled to Australia based on the Working Holiday Visa. During the relevant year, a new tax regime was inserted to tax the income of persons having a Working Holiday Visa.

A flat rate of tax of 15 percent to the first $37,000 of an individual’s “working holiday taxable income” levied subject to a maximum tax liability of $5,550. However, the tax burden for an Australian national deriving taxable income from the same source as an individual earning working holiday taxable income was less. They were entitled to a tax-free threshold for the first $18,200 and were then taxed at 19 percent up to $37,000, with a maximum tax liability of $3,572.

The matter was reached before the High Court of Australia.

High Court Held

It was held by the Australia High Court that the rates applied to tax those having working holiday visas will be considered more burdensome than that which is applied to resident Australian Nationals. Despite doing the same kind of work, and earning the same amount under the same circumstances, the appellant was required to pay more tax than the resident Australian national.

Article 25(1) of the United Kingdom convention relevantly provides that nationals of the United Kingdom shall not be subjected in Australia to “other or more burdensome” taxation than is imposed on Australian nationals “in the same circumstances, in particular with respect to residence

Article 25 is consistent with the commentary of the OECD Model Convention that where tax is imposed on nationals and foreigners in the same circumstances, it should be the same in the context of charge and method of assessment including the rate of tax.

Since, in the present case, discrimination was there based on nationality and the tax rate applied was different, it was held that the act of taxing the income at different rates was a violation of Article 25 of the Tax Treaty.